French govt should ask why Sony hasn't contributed to the cost of the electricity network

Thursday 23 December 2010 | 14:16 CET | Market Commentary

The French government has entered the debate over whether over-the-top players like Google should contribute to the cost of infrastructure. This means of course the cost of next-generation access networks, such as FTTH. Almost all the big operators think that the OTT market should contribute to the cost, and Google et al are using their infrastructure without paying.

The debate recently came up in the US as well, due to a conflict between Comcast and Level 3. They have a peering agreement, but Comcast decided to ask Level 3 to pay more for delivering traffic. Behind this is Netflix, one of the biggest OTT providers and a Level 3 customer. This is really about video streaming traffic from Netflix, which during peak times in the US is good for around 20 percent of download traffic (source: Sandvine; see our commentary ‘Network pressure from Netflix shows success of OTT video')

Likely underlying this is also that Netflix competes directly with Comcast, the biggest cable operator in the US. This is brave, if not unhandy, that Comcast now decides to start something with Level 3, which has been broadcasting loudly that Comcast is violating the principle of ‘net neutrality’. At the same time, Comcast still needs clearance from the US government for its takeover of NBC Universal. Due to Comcast’s growing market power, a number of organisations are lobbying the government to block the deal.

There are roughly two positions to take on this issue. The position of the French government and the operators is pretty straightforward and speaks for itself. On the other hand, there s a completely different view, that operators were created for network investments and no one else. So far that has worked well; the businesses generate a lot of cash and re-investment in the network is around 10-12 percent (capex as a percentage of revenues). Telekom Austria recently said at an analyst meeting that this percentage will increase in the coming years to 16 percent. This is all to do with investments in NGA networks (FTTH and LTE), which have the common requirement of construction to bring fibre closer to the subscriber. Currently, construction is not the normal course of business; KPN exists almost 100 years and the transition to FTTH can be easily described as a dramatic phase. But does this justify requiring players such as Google and Netflix to contribute to the costs of this once-in-a-lifetime operation?

Operators can always try it, but success is far from assured. To start with, operators need to realize that thanks to the OTT market they have a completely new revenue source to plough: broadband. ISPs should really be thankful to Google. In addition, it should be stated that OTT providers are doing all they can to deliver their content as close as possible to the subscriber. Google spends hundreds of millions of dollars every quarter on servers, connections and data centres. Others such as Akamai and Limelight, with their content delivery networks also play a role in this. Furthermore, it’s dubious to claim that Google uses the ISPs’ networks; it’s better to point out that it’s more the subscribers of the ISPs who are searching for Google’s content. And as a result it’s the ISP that’s responsible for the existing demand.

The absurdity of the French government can best be illustrated with a metaphor. When the electricity network was deployed, it was mainly designed for lighting. Today, we see not only a modernized and wide-ranging network but also any number of devices that make use of it – our houses are full of such equipment. The question the French government should be asking is: have Sony and Philips paid 1 cent for the construction and maintenance of the electricity network?

Free Headlines in your E-mail

Every day we send out a free e-mail with the most important headlines of the last 24 hours.

Subscribe now

::: add a comment